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Kercsmar & Feltus Prevails for its Client on Appeal

November 12, 2015

Kercsmar & Feltus lawyers Todd Feltus and Julia Guinane represented Scott Cole’s widow in two lawsuits brought by creditors of Mortgages Ltd. against Ms. Coles seeking to recover insurance proceeds paid to her. Both cases resulted in unanimous, published Arizona Court of Appeals opinions in Ms. Coles’s favor.

ML Servicing Co. v. Coles, 235 Ariz. 562, 334 P.3d 745 (App. 2014).

September 16, 2014

http://caselaw.findlaw.com/az-court-of-appeals/1678307.html

ML Servicing Co. and ML Liquidating Trust (“ML”) filed a lawsuit against Ms. Coles seeking to recover insurance proceeds paid to her, alleging that the insurance premiums had been paid with misappropriated funds from Mortgages Ltd.  Under Arizona law, certain life insurance proceeds receive special protection.  Specifically, under Arizona’s “exemption statute” the proceeds of life insurance are protected from claims of creditors of the person who died.  This exemption statute was enacted because the Arizona legislature wanted to encourage people to provide for their heirs and, in turn, protect the heirs from the deceased’s creditors.  Based on Arizona’s exemption statute, A.R.S. § 20-1131, Ms. Coles moved to dismiss the lawsuit. The trial court granted Ms. Coles’s motion to dismiss, finding that Arizona’s exemption statute barred any creditor of a decedent from recovering life insurance proceeds from a beneficiary. The trial court also granted Ms. Coles her fees under A.R.S. § 12-341.01. ML appealed.

The Court of Appeals affirmed.  First, the court held that ML was indeed a “creditor” under A.R.S. § 20-1131(A), not the policies’ owner as argued by ML.  ML was an entity to which a debt was owed, which is the ordinary meaning of a creditor.  The court rejected ML’s argument that it was the owner of the policies and could sue by virtue of ownership.  Relying on In re Estate of King, 228 Ariz. 565, 568, 269 P.3d 1189, 1192 (App. 2012), the court affirmed that no person or entity owns insurance proceeds until the insured’s death.  In other words, the proceeds did not exist in Scott Cole’s lifetime and neither Scott Coles nor ML ever “owned” the proceeds for ML to reclaim. 

The Court also held that ML was not without a remedy. When insurance premiums have been paid by fraudulent means, A.R.S. § 20-1131(B) provides a means to recover the fraudulently taken premiums.  ML, however, chose not to pursue relief under A.R.S. § 20-1131(B) and instead brought claims as to the proceeds of the policies.  Because ML had an adequate remedy at law (which it chose not to pursue), the equitable remedy of a constructive trust was not available to ML. 

The court affirmed the trial court’s award of attorney fees and awarded Ms. Coles her costs on appeal.

Judge Orozco authored the opinion. Judges Winthrop and Jones joined.

 

Marsh v. Coles, 361 P.3d 383 (Ariz. App. 2015).

November 10, 2015

https://www.courtlistener.com/opinion/3153444/marsh-v-mayer/

In another lawsuit seeking the same insurance proceeds, investors of Mortgages Ltd. brought claims against Ms. Coles and other family members under Arizona’s racketeering statutes. Under Arizona’s racketeering statutes, a person may recover damages arising from racketeering activity.  One remedy contemplated in the statute is a constructive trust on the illegally acquired property and the fruits of that property.  The investors used this statute as their basis for seeking a constructive trust over the life insurance proceeds paid to the Coles family.

The investors claimed that Scott Coles, along with various professionals, conducted an illegal racketeering enterprise.  According to the investors, Coles used the funds acquired from this illegal enterprise to purchase life insurance policies. The investors conceded that neither Scott Cole’s widow nor any of his family members ever engaged in any wrongdoing.  Nevertheless, the investors sued the professionals seeking damages and the Coles family to recover the life insurance proceeds through a constructive trust under the racketeering statute.

The professionals and the Coles family moved to dismiss the complaint. The Coles family argued, among other bases, that because there were no allegations of any wrongdoing on their part, A.R.S. § 13-2314.04(L) barred the constructive trust remedy on the life insurance proceeds.  The trial court dismissed the racketeering claims against the professional defendants.  According to the trial court, because there was no racketeering claim against any defendant, no constructive trust remedy was available under the racketeering statute.  Accordingly, the trial court dismissed the constructive trust claim against the Coles family.  The investors appealed.

The Court of Appeals affirmed the dismissal of the constructive trust claim, but on different grounds.  The Court held that A.R.S. § 13-2314.04(L) barred the constructive trust claim because, as the investors concede, the Coles family never engaged in any wrongdoing.  Under the statute, a person (or enterprise) cannot be held liable in damages “or for other relief” unless a fact finder finds that the person “authorized, requested, commanded, ratified or recklessly tolerated the unlawful conduct of the other.” A.R.S. § 13-2314.04(L).  A fact finder could never make this finding in this case.  Accordingly, the Court held that the constructive trust claim against the Coles family was barred.

The Court acknowledged that A.R.S. § 13-2314.04(D)(6) and A.R.S. § 13-2314.04(L) somewhat overlap in that both subsections protect bona fide purchasers.  The court reviewed the legislative history of the RICO statutes, however, and determined that each subsection serves distinct purposes and protects distinct classes of persons.  Accordingly, the two subsections are not redundant and can both accomplish distinct purposes without creating contradiction.  Consequently, the overlap in their effect does not render the Court’s statutory interpretation of § 13-2314.04(L) improper, especially because § 13-2314.04(L) is clear on its face.

The Court affirmed the award of attorneys’ fees and awarded the Coles family their attorneys’ fees and costs on appeal.

Judge Norris authored the opinion.  Judges Kessler and Gould joined.


Posted on November 12, 2015 | « Back to News